The mortgage origination process is when a lender approves a mortgage application from a borrower and provides the financing to purchase a home.
1. Contact a Mortgage Broker
In the initial stage, you should contact several mortgage brokers to see what interest rate is being offered and the lenders they work with. Most brokers will provide rates at a very similar rate, and in that case, you should choose a mortgage broker to who you feel comfortable providing sensitive documents.
2. Pre-approval
Once you choose a mortgage broker, you will need to provide basic information to get a pre-approval letter. This document based on your income, credit score, and other financial information will give you an amount you can borrow to buy a home and what the interest rate might be. This will give you a better idea of how much you can afford to borrow and make you a more attractive buyer to sellers.
Here are some of the most important factors that determine the amount:
Income: Your income is one of the most important factors as it determines your debt-to-income (DTI) ratio, which is the percentage of your income that goes toward debt payments.
Credit score: Your credit score is a measure of your creditworthiness and is used by lenders to assess the risk of lending to you.
Down payment: The size of your down payment can affect the amount of mortgage loan you qualify for.
Employment history: Lenders typically prefer borrowers with a stable employment history and a steady stream of income.
Assets: Lenders may consider your assets, such as savings or investments, to find assurance on the risk.
Property value: The value of the property you're purchasing will need to be under the amount that the lender assesses as reasonable.
Overall, the criteria used to determine how much mortgage loan you can qualify for may vary depending on the lender and the type of loan you're applying for.
3. Property search
Now that you know the budget of a mortgage amount you can obtain, you can combine that with the amount of down payment you plan to put down to get a range of home prices you can search for.
For those who are financially sound and plan to retire early, you may already know the concept of being house poor. I recommend determining how much you can afford to borrow and how much you can afford to pay each month trying to find a home where including your property taxes will come out to about 25% of your net take-home pay.
4. Application
The borrower submits an official mortgage application, which includes details about the property, their income, and their financial history. If you're pre-approved, this shouldn't be much of an issue. This step is to confirm additional details and verify your income, credit history and finalize and approve the loan for the home you are requesting a loan for. The lender reviews the application and supporting documents to ensure that the borrower meets all the eligibility criteria.
5. Property appraisal
Once you have found a dream home and negotiated a purchase price with your agent, the lender will need to send out their independent home appraiser to ensure that the value of the home is worth the amount you're borrowing. If the purchase price is above the appraised value of the home, you would need to come up with the difference as the bank will not provide a loan for an overinflated home. Most of the time, the purchase price equals the appraised value, but there are certainly times when they don't. The lender will hire an appraiser to evaluate the property's value and ensure that it's worth the amount you're borrowing.
6. Approval
The lender's underwriter will review all of the information provided by the lender and the appraiser to determine whether or not to approve your mortgage loan. The lender reviews the borrower's creditworthiness, including their credit score, debt-to-income ratio, and employment history. If the lender is satisfied with the borrower's eligibility and creditworthiness, they approve the loan.
7. Closing
The borrower signs the final loan documents and provides a down payment, while the lender funds the mortgage. If your mortgage loan is approved, you'll attend a closing meeting to sign the final documents and receive the funds for your new home purchase.
Overall, the mortgage origination process can take several weeks to complete, and it requires a lot of documentation and due diligence from both the lender and borrower.
Here are some Tips when planning to apply for a Mortgage:
Check your credit score before applying for a mortgage, it's important to know that it's up-to-date and you can prepare to increase the score as much as you can.
Be prepared to gather a lot of documents. Your lender will require various documents to process your mortgage application, including pay stubs, tax returns, bank statements, and proof of insurance. Be prepared to provide these documents as soon as possible to avoid delays.
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